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Canadian soybean exports to China jumped 80% last year. Now farmers are getting nervousCanadian soybean exports to China jumped 80% last year. Now farmers are getting nervous
Producers worry China will block soybean shipments as well as canola, leaving them few places in the world to sell
Canada’s soybean exports to China rose 80 per cent to nearly 3.6 million tonnes in 2018 compared to a year earlier, as Beijing’s 25 per cent tariff on U.S. soybeans upended global trade flows and sent Chinese buyers hunting for alternative suppliers.AP Photo/Orlin Wagner, File
April 1, 2019
2:35 PM EDT
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China’s widening ban on canola imports has put producers of other Canadian oilseeds on edge, with soybean producers particularly uneasy after the U.S.-China trade war redirected a vast proportion of their crop to the Asian market last year.
Canada’s soybean exports to China rose 80 per cent to nearly 3.6 million tonnes in 2018 compared to a year earlier, as Beijing’s 25 per cent tariff on U.S. soybeans upended global trade flows and sent Chinese buyers hunting for alternative suppliers.
We’ve gone from a third of our exports going to China to over 60 per cent in 2018
Ron Davidson, executive director of Soy Canada
“We’ve gone from a third of our exports going to China to over 60 per cent in 2018,” said Ron Davidson, executive director of Soy Canada. “Product that would have gone elsewhere has gone to China and made us very, very dependent on that one market. That’s not what you want if you’re after diversified markets to manage your risk.”
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Though Canadian officials have not confirmed whether any other Canadian crops have faced disruptions in trade with China, “I can tell you there is a great deal of nervousness,” Davidson said.
“We’re not in the canola dispute now but who knows what happens tomorrow,” he said. “There’s angst about that.”
Though the surge in soybean purchases from China was initially seen as a boon for Canadian farmers, industry leaders warned that other unintended fallout from the U.S.-China dispute would ultimately offset any gains. The levies have already driven down U.S. soybean prices, a shift that has also hurt farmers north of the border, where prices are linked by formula to those in the U.S. soybeans are now trading at $8.95 per bushel, down from $10.50 in May.
What’s more, with the U.S. shut out of the vast Chinese market after a record 2018 to 2019 harvest, about 30 million tonnes of U.S. soybeans were left to seek alternative markets. That’s forced Canadian farmers to compete with a flood of cheap U.S. beans in many other markets where they had previously enjoyed a strong and expanding foothold — most notably Europe.
Exports of Canadian soybeans to the European Union fell 45 per cent in 2018 to just over 697,000 tonnes, with shipments to Spain alone falling 99 per cent to 2,299 tonnes. Meantime, the amount of U.S. soybeans coming north into Canada soared, rising 52 per cent to 918,217 tonnes in 2018.
“The Chinese demand coming to Canada represents short-term gain for long-term pain,” said Markus Haerle, a soybean farmer and chair of the Grain Farmers of Ontario. “We’ve lost so much share in Europe where we had very high volumes. Now we’ve got imported beans being sold in our domestic market at an even lower cost.”
Adding to all of these concerns is Canada’s intensifying canola dispute with China.
Chinese customs authorities most recently revoked the export licence of Regina-based agricultural firm Viterra just weeks after Winnipeg’s Richardson International received the same treatment. Beyond these official measures, the Canola Council of Canada said importers have halted all new purchases of the crop.
Though China has alleged Canadian canola contains harmful pests and “weed seeds” the ban is widely viewed as retaliation for Canada’s arrest of Meng Wanzhou, an executive with Chinese telecom giant Huawei, at the behest of the United States.
With spring planting season fast approaching and a harvest just six months in the future, the uncertainty is growing, Haerle said.
“All oilseeds in Canada are under pressure at the moment,” he said. “For us if we don’t have China we’ll have to find somewhere else to go. Domestic consumption is not going to go up and the export market is saturated.”
The distortions in the market created by the China-U.S. trade tit for tat may only get worse. Having harvested a record crop in the same year they were shut out of their largest market, U.S. farmers are poised to “carry over” a record 900 million bushels of soybeans into the next year, said Ken Ball, a senior commodities futures advisor at PI Financial in Winnipeg.
“We used to consider 350 million bushels ugly for the markets now the surplus in the U.S. is more than we’ve ever seen historically,” said Ball. “U.S. exporters are aggressively trying to move those beans. If Canada is shut out of China that’s going to make it very hard to compete.”
A China-U.S. trade deal may not restore normal trade flows since it is widely expected to include a pledge from Beijing to buy more U.S. soybeans — leaving Canada to hope it can regain market share elsewhere. Davidson also worries about China’s move to trim soybean meal use in its livestock feed and increase domestic production, a measure that could see China’s demand for foreign soybeans decrease permanently.
And a US$12 billion U.S. bailout for soybean farmers — an amount that equates to $1.65 per bushel — may only be exacerbating the surplus by encouraging U.S. farmers to hang onto their beans in hopes prices will improve.
“All these things meshed together make it really hard,” Davidson said. “We would have been far better off if markets had been allowed to function normally.”
Canadian soybean farmers have been talking to the federal government about creating a business risk program to cover future market loss. The government has said it is considering providing an aid package for canola farmers hit by the U.S. restrictions.